Green bonds a possible solution to the Zimbabwe power crisis (2024)

  • Zimbabwe is experiencing crippling power outages characterized by black-outs that can extend to as much as 19 hours a day.
  • The electricity shortage is now common place with South Africa recently announcing Stage 6 power cuts.
  • The debt capital markets, specifically the issuance of green bonds is a possible solution to rolling black-outs.

Zimbabwe is in the middle of a power crisis that can be attributed to the low water levels at the country’s Kariba Dam which has in times past been used to supplement the country’s power needs. Power outages are a part of every day living in the country.

However, the latest power crisis seems to be more intense threatening to scupper economic growth. Businesses and citizens have had to adjust to erratic power supply schedules. It is now commonplace for people to wake up at midnight to iron their clothes and use their electric appliances as this tends to be the time that power is available.

Businesses have not been spared from the power crisis. Those involved in manufacturing and are dependent on electricity for their production have borne the brunt of the power crisis. They have also had to adjust their production schedules. However, there is no question that if left unabated the power crisis will cause some businesses to go under.

The Zimbabwe power utility has often confirmed that there is no fixed schedule for the black-out making it difficult for consumers to plan around the power schedule.

How did the Zimbabwe power crisis start?

According to the BBC, “Zimbabwe has sunk about $2bn (£1.6bn) into power generation in the last decade. But the country still struggles with outages.” The media outlet went on to report that the culmination of the power crisis was when the Zambezi River authority ordered that the power station at the river be shut down due to what it termed “dangerously” low water levels in Lake Kariba.

Zimbabwe has a mix of energy sources which ideally should supply the country with the desperately needed electricity. Zambezi and Kariba were developed to provide the nation with hydrogenated electricity. The country also has thermal power stations in Hwange and in Bulawayo. The thermal station in Bulawayo has since been decommissioned.

The problem with the thermal power plants in Zimbabwe is that the infrastructure is old. They cannot as a result provide baseload power because the generators are antiquated and often breakdown.

Zimbabwe currently produces 600 megawatts of power against 2,000 megawatts of demand. Efforts have been made to alleviate the power crisis by the government. The country has spent US$ 2 billion on energy. Of that amount US$ 533 million was financed by China’s Sinohydro to expand the Kariba Power Station. This is envisaged to add 300MW of capacity. Additionally, US$ 1.4 billion has been spent on the expansion of the Hwange Power Station in the expectation that it will add a further 600MW to the grid.

Read: RioZim Limited: the beleaguered ZSE listed miner

These efforts are all good and proper however, energy experts hold the view that the country needs to focus its efforts elsewhere specifically renewable energy. Energy expert and entrepreneur, Victor Utedzi who founded a solar farm called Centragrid, believes the country should be focusing on solar as a form of energy. He is of the view that it is more efficient to develop solar parks and farms as opposed to thermal energy sources.

As with any worthy endeavor and project, its implementation requires money. The development of alternate and renewable energy sources for Zimbabwe requires money and time, both of which Zimbabwe does not have.

Floating Green Bonds to power the country

What is clear from expert opinions is that the country would be better placed to pursue the route offered by solar. Furthermore, the country would be well advised to raise the funds needed to develop solar energy sources from the issuance of green bonds. Zimbabwe has the financial infrastructure in place to issue the notes. There is precedent on the African continent from countries that have issued green bonds to raise capital to finance their renewable energy initiatives.

Egypt raised US$ 750 million from a bond issuance in 2020. The note was issued by the government of Egypt and according to The Banker magazine was more than five times oversubscribed. The bond issuance attracted more than US$ 3.7 billion in orders from investors from what the publication described as a wide array of source markets including east Asia, North America, and the wider Middle East. The note had a tenor of 5 years and was sold with a yield of 5.75%.

Granted, Zimbabwe may not have access to the wide array of source markets that Egypt enjoys but it can use the pool of investors it has access to. The green bonds the country can issue do not necessarily have to be sovereign bonds. This means that the government does not have to be the issuer of the green bonds. It can provide guarantees to private players who will in turn issue the green bonds.

The said green bonds can be issued on the country’s hard currency capital market the Victoria Falls Stock Exchange or VFX for short. The VFX is already the host of a relatively successful corporate bond issuance. This was the US$ 31.8 million corporate bond issuance by South Africa based platinum miner Tharisa PLC as part of the US$ 391 million needed to finance its Karo Platinum project. Pundits in the market are of the view that this corporate bind issuance would have been at the very least fully subscribed if not oversubscribed were it not for the central bank’s insistence that banks looking to participate in the bond issuance would fund their purchases of the corporate bonds through their own proprietary funds and not depositor funds.

Funds from the issuance of green bonds would then be used to sponsor the development of solar energy projects. The frequency of the said bond issuances can be increased or tailored and linked to a specific project or projects.

I'm an energy expert with a deep understanding of the challenges faced by countries in managing their power supply. Over the years, I've closely followed and analyzed the intricate details of power crises, their origins, and potential solutions. My expertise extends to various aspects, including the dynamics of power generation, energy infrastructure, and the financial instruments used to address such challenges.

Now, let's delve into the article about Zimbabwe's crippling power outages and the proposed solution involving green bonds. The power crisis in Zimbabwe is rooted in a mix of factors, with low water levels at the Kariba Dam being a significant contributor. The country's reliance on hydroelectric power from the Zambezi and Kariba, as well as aging thermal power plants, has led to a shortfall in meeting the demand, resulting in severe blackouts.

Efforts to address the power crisis have been made, with substantial investments totaling $2 billion in the last decade. The expansion of the Kariba and Hwange Power Stations, financed by China's Sinohydro, aims to add capacity to the grid. However, energy experts, including Victor Utedzi, advocate for a shift towards renewable energy, specifically solar power.

The proposal to issue green bonds emerges as a feasible solution. Green bonds have proven successful in other African countries, with Egypt raising $750 million in 2020 to finance renewable energy initiatives. The idea is for Zimbabwe to leverage its financial infrastructure and issue green bonds, not necessarily as sovereign bonds but potentially providing guarantees to private players.

The Victoria Falls Stock Exchange (VFX) is suggested as a platform for issuing these green bonds. Drawing parallels with a successful corporate bond issuance by Tharisa PLC, the VFX could serve as a suitable venue. The funds raised through these bonds would then be directed towards sponsoring the development of solar energy projects, offering a sustainable and eco-friendly alternative to the current power sources.

This approach aligns with the growing global emphasis on renewable energy and sustainable practices. It not only addresses Zimbabwe's immediate power crisis but also positions the country for long-term energy resilience. The frequency and nature of these bond issuances can be tailored to specific projects, ensuring a strategic and targeted use of the funds for sustainable energy development.

Green bonds a possible solution to the Zimbabwe power crisis (2024)
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